Capital for the Underserved – by Bunmi Lawson

The World Bank study says that about 70% Nigerians live in poverty. That’s about 90 million people who do not have access to financial services.

Let us look at some pertinent questions related to financial inclusion.

WHY IS FINANCIAL INCLUSION IMPORTANT?

Financial inclusion is definitely the first step to have access to health and education because it helps us to increase income. For example – In the villages people save their money under the pillows. Since many people don’t have any other safe places to keep the money, often it will get spent or lost. People then struggle to pay for their children’s education fees or for health care. So access to financial services opens doors for people to be able to save, buy insurance, have access to credit and increase their income.

Sadly, the Central Bank estimates that only about 35% Nigerians have a bank account. But in my estimation, there might be only about 10% that actually have access to a bank account. The 35% must be duplication of accounts. 90% may not even have access to a bank account. Without even basic bank account access, how can people begin to take part in economic development?

ACCESS TO INSURANCE AND FINANCIAL INCLUSION

Financial inclusion is not just about access to a loan. Insurance is also important. Now, there are reports that only about 1% of Nigerians actually have access to insurance. But it is important for people to have insurance because many people are poor and sacrifice a lot to save, send their children to school and provide a good life for their family. So if the breadwinner or one of the family members falls ill, then a huge amount of money will have to be spent on health care. And people that do not have access to insurance are vulnerable to go back into poverty. This is often a vicious cycle.

TECHNOLOGY AND FINANCIAL INCLUSION

The use of technology can create financial inclusion since more people would then be able to open bank accounts. For example - if we take East Africa, more people now have a mobile wallet than even a bank account. Today, mobile phone penetration is about 87% more than a bank account. So why can we not maximize this technological boom and help people to have a bank account on their phone?

SOME REAL LIFE EXAMPLES

Let us look at some real life examples. Accion started in the year 2007 in the Lagos state and has been able to reach over 120,000 customers. It disburses about a billion naira per month in loans and about 72 billion Naira to micro-entrepreneurs. Micro-entrepreneurs are basically the small scale vendors, shop keepers, carpenters, mechanics whose total business valuation is less than 100,000 naira. Accion is now planning to branch out across 10 states in the next 5 years with 100 branches. They use an individual methodology where the loan officer goes into the market place and asks people if they need financial services. They help open accounts and easily access some of the things that the financially excluded people would otherwise get stumped by. They give an ATM card for people to have access to money 24/7. They also provide insurance. So if there is any fire or burglary incident, then the insurance company repays the loan. If a person dies, then also the insurance company repays the loan and the family gets a burial benefit.

They also provide for physically disabled people. They design products that help them have access to savings, loan and other financial services. They take steps to ensure that even accessing the bank premises are made convenient for the disabled people. They further provide tailor made loans for women in order to empower them without any discrimination.

There are four easy steps to get a loan –

First the loan officer helps fill out the loan application

Next the company evaluates the business.

After ascertaining the business soundness and their ability to pay back loan amounts, they start off with a small amount. The smallest loan size amount that they give is about $7500 naira.

Using the HERO index, they measure the impact of the loan given out. H stands for ‘health’ and so they measure access to health. E is access to ‘education’ for them and their family. R is for ‘residence’, so they check if they have done improvements in their residence. We try to help them build their own home, so that they don’t have to pay rent money all their life. O is for ‘outlook’, a hope for a brighter future.

I don’t believe in offering charity to people, instead we have to offer opportunity to people. The interesting thing is that the Company does not ask for physical collateral, but for social collateral - somebody that knows them and can guarantee the borrower’s character. Out of the 42 billion naira loan amount that was disbursed, they have had to write off less than 1%. They have had only about 7% of people that haven’t paid within 30 days.

CONCLUSION

Finally, financial inclusion should be inexpensive. For example - When mobile phone started in Nigeria everyone complained that it was expensive. Today it is cheap. The more we are able to increase the scale and reach more people, the more the prices will come down and the more we will see the benefit. Prices shouldn’t be a reason why we should not start providing financial access. How can everybody help? - Start a savings account with a micro finance bank, because if more people save in a micro-finance bank, they we will be able to extend financial services to more people.